Fintech and financial inclusion

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“Economic growth means nothing unless it is inclusive growth” — John Green

Financial inclusion means that individuals have access to useful and affordable financial products and services that meet their needs: transactions, payments, savings, credit and insurance delivered in a responsible and sustainable way.

Financial inclusion is a key element of social inclusion, particularly useful in combating poverty, income inequality and improving financial literacy.

Financial technology (fintech) has taken center stage to instill financial inclusion. Most central banks believe that low cost, far-reaching digital solutions hold the key to reach out to the people who are still excluded from formal financial services.

“Fintech” is a term used to describe the collaboration of finance and technology or today, is often seen as a uniquely recent marriage of financial services and information technology. The core of Fintech is about using new technology-based solutions for financial services. Fintech represents technologies that are disrupting traditional financial services, including mobile payments, money transfers, loans, fundraising, wealth and asset management. fintech refers to innovations that aim to compete with traditional financial methods to deliver financial services.

fintech players aim to reach a broader range of customers, in a more efficient, cheaper and customer-friendly way than traditional bricks and mortar financial institutions. Without realising, we adopted fintech very long ago, but the term fintech was only used few years back. In the 1950’s, finance and technology started to develop many inventions.

After the introduction of American Express and Diners’ Club credit card, this consumer revolution was further supported by the initial establishment of the Interbank Card Association (now MasterCard) and the deployment of the first ATM machine by Barclays Bank in the United Kingdom.

This combined development marks the commencement of fintech. Let’s see how fintech has developed financial services:

E-wallet or e-money

The depletion of fiat money has started since the adoption of e-wallet. E-wallet is a type of prepaid account in which an individual can store money for any retail or online transaction. An E-wallet is protected with a password.

With the help of an E-wallet, one can make payments for groceries, online purchases, and flight tickets.

With the support of the government under the recent e-penjana of giving RM50 e-wallet credit, only Malaysians aged 18 years and above as of December 31, 2020 and those with an annual income of less than RM100,000 will be eligible.

To date, there are 48 non-bank e-money licenses provided by Bank Negara under the e-money issuers category. Touch N Go, Grab pay, Boost, BigPay and Alipay are some of the local e-money platform providers.

Robo advisors

Robo advisors, or Digital Investment Management (DIM) as classified by Securities Commission in Malaysia, are new type of firms, who are disrupting the financial services, more specifically the unit trust and investment brokers.

Currently, Securities Commission has issued three licenses for DIM or Robo Advisor firms, which are StashAway, MyTheo and Wahed. The advantage of robo advisors is lower fee (Robo Advisor firms charge around 0.2 per cent to 0.8 per cent annual management fee and no other hidden fees).

In Malaysia, using consultants and agents will cost from three per cent to 6 per cent for their services. As they are paid a commission, they benefit no matter what they suggest. Since they represent certain financial institutions, it will be difficult for them to provide unbiased advice as Robo Advisor firms in Malaysia also accept zero investment to open an account and doesn’t require a minimum balance.

Younger investors with small amount of capital or those just beginning to invest can immediately start their investment.

InsureTech

InsureTech is a term applied to the segments of new technology that are disrupting the insurance intermediaries (agents and brokers). It can be difficult to differentiate a good insurance agent from the salesperson nature.

This may be because the agent may be focused on closing the sale without much regard for what you really need. The insurance quotes that you get may be limited only to the insurance companies that the insurance agent is affiliated to.

The benefits of InsureTech are no intermediary’s biasness, significantly lower cost premium (since there is no commission paid to agents and brokers), simplified underwriting, more efficient and transparent claims handling, innovative with new products and independent recommendation. FiLife, GoBear, GoInsurance and GetCover are some of the local InsureTech providers.

Crowdfunding

Crowdfunding is a method of raising capital through the collective effort of individual investors. Crowdfunding is a way of raising money to finance projects or businesses, enabling fundraisers to collect money from many people using technology and providing the return on investment to investors.

Traditionally, if you want to raise capital to start a business, you would need to develop your business plan, market research, prototypes and then look around for investors or banks to provide the capital. Crowdfunding share your pitch resources; this approach dramatically streamlines the traditional model.

Now you don’t need to spend months looking through your personal network, vetting potential investors, and spending your own time and money to get in front of them.

With crowdfunding, it’s much easier for you to get your opportunity in front of more interested parties and give them more ways to help grow your business.

AlixGlobal, AtaPlus, Crowdonomic, Eureeca, pitchIN, Propellar Crowd+ and Fundnel are the latest organisations to be granted a license by Securities Commission Malaysia.

Money transfer and currency exchange

fintech Companies have made international money transfers or overseas transactions easy and at the same time, cheaper. The cross-border money transfer which was once the costliest is now made cost-effective as fintech companies have removed the involvement of third parties in the transactions.

Merchantrade, eForex, Tranglo and BigPay are few fintech players who are into money transfer and currency exchange.

Even though fintech has huge potential in developing financial inclusion to public, I still think we Malaysians still have poor financial literacy when it comes to adopting fintech development. Only with better financial literacy will we be able to feel the financial inclusion in the society.

According to the Financial Education Network, chaired by Bank Negara Malaysia and OECD/INFE 2020 International Survey of Adult Financial Literacy, Malaysians generally scored only 12.5 points out of 21 points.

This is something very alarming and we individually should take some personal initiative to improve our financial literacy. In conjunction with World Financial Planning Day which was on October 7, let’s all play our parts in increasing our financial literacy.

Gunaseelan Kannan, a licensed financial advisor by Bank Negara Malaysia and a licensed financial planner by Securities Commission (CMSRL/B4198/2013), is currently pursuing his PhD research on financial planning and financial technology. He also lectures on accounting, finance and business fields in Asia Pacific University of Technology and Innovation (APU). He is the Malaysian Financial Planner of the Year 2018 and 2019 Award winner (1st Runner Up), from Financial Planning Association of Malaysia. Email: [email protected]